Editorial: Make municipal partnership pay off

Friday

Jul 27, 2007 at 12:01 AMJul 27, 2007 at 10:08 PM

FRAMINGHAM, Mass. -- Gov. Deval Patrick and the state Legislature last week delivered two tools cities and towns can use to help get their budgets under control. Now it's time for local officials to put them to work.

Editor's note: some local references can be deleted or localized.

Gov. Deval Patrick and the state Legislature last week delivered two tools cities and towns can use to help get their budgets under control. Now it's time for local officials to put them to work.

Unlike parts of Patrick's Municipal Partnership initiative still stalled in the Legislature -- including local-option meals taxes and closing a loophole through which some telecommunications firms avoid property taxes -- the elements signed into law this week won't put money directly into municipal coffers. But they could reduce the pressure on municipal budgets, which is necessary to hold property tax increases in check.

The new law allows cities and towns to shift the management of their employee health plans to the state's Group Insurance Commission. All employers face rising health insurance costs, but the costs for municipal policies have been rising at nearly double the rate of the GIC.

The legislation sets a high bar to participation in the GIC savings: 70 percent of unionized employees must approve the change. Since joining the GIC will take some benefit options off the table that are now negotiated locally, some union leaders can be expected to resist. Municipal leaders fear that the potential savings from switching to the state program will be more than offset by concessions demanded by unions to approve the change.

A second provision requires underperforming local pension funds be invested through the state's Pension Reserve Investment Trust. The PRIT has consistently achieved better returns than most municipal pension plans. Rate of return matters, and not just to retirees: Nearly every municipal pension plan is underfunded, and taxpayers are obligated to make up the difference. Every dollar that can be earned through investments is one that won't have to be raised through taxes.

There is resistance to this reform as well, mostly from local pension boards -- and their investment advisers -- who don't want to give up control over investment decisions. Their opposition resulted in the bill being watered down to define as underperforming only those pension plans funded at less than 65 percent of their obligations. Among MetroWest communities, only Waltham's fund will be forced into state control by this act.

But all municipalities are free to turn their investment authority over to PRIT on their own, and over the last 10 years, PRIT-managed funds have had a stronger rate of return than just about all local pension funds.

While many smaller communities and school districts no longer control their own pension fund investments, those that do could see real savings in the long run by joining PRIT now.

The one way to make certain savings from these two programs aren't realized is by refusing to make the attempt.

On this, as in other areas, municipal leaders and municipal employees should be exploring the opportunities, and they shouldn't wait until the heat of next spring's budget debates.

Municipal leaders who wish to avoid the next override should begin talking now with their employee unions and pension boards. Patrick and the Legislature have presented an opportunity. It's up to local leaders to make it pay off.